Enbridge Inc

Welcome to the Enbridge, Inc. Fourth Quarter 2020 Financial Results Conference Call. My name is Jonathan, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session for the investment community. During the question-and-answer session, if you have a question, please press star then 1 on your touchtone phone. Please note that this conference is being recorded. I would now like to turn the call over to Jonathan Morgan, Vice President of Investor Relations. Jonathan, you may begin.

Thank you. Good morning, and welcome to the Ember Jink Fourth Quarter 2020 Earnings Call. Joining me this morning are Al Monaco, President and Chief Executive Officer, Colin Grunding, Executive Vice President and Chief Financial Officer, Vern Yu, Executive Vice President, Liquids Pipelines, Bill Yardley, Executive Vice President, Gas Transmission and Midstream, Cynthia Hansen, Executive Vice President, Gas Distribution and Storage, and Matthew Ackman, Senior Vice President, Strategy and Power. As per usual, this call is webcast, and I encourage those listening on the phone to follow along with the supporting slides. We're going to try and keep the call to roughly one hour, but we'll allow for additional time if necessary. In order to answer as many questions as possible during the Q&A portion of our call, we ask that you each keep to a single question and rejoin the queue if you have any follow-ups. We'll do our best to get to each of you. And as always, our investor relations team is available after the call for any detailed follow-up. If you are a member of the media, please direct your questions to our communications team, who will be happy to respond. On to slide two, where I'll remind you that we're referring to forward-looking information on today's call, and by its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here, and discuss more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. And with that, I'll hand it over to Al Monaco.

Okay, thanks, Jonathan. Good morning, everybody. So Colin and I are going to cover the usual agenda, including the business update, the financials, and a recap of our capital allocation priorities. Given the challenging dynamics of energy today, we're also continuing our discussion on how we see the energy space. At the end, I'll tie it together with what you see here on the slide, which is how Enbridge is the bridge to the energy future and the value proposition that we're offering. So let me start with the energy landscape. As we said at Enbridge Day, we're cautious near term, but very optimistic about the long-term fundamentals. We're in the heart of the second wave here, so the timing of a full recovery is uncertain, and it depends on the speed of the vaccine rollout. but a strong recovery is bound to happen. It's also clear that the industry is fully aligned on the need to reduce emissions. We ourselves have established a net zero target. And we've built optionality by diversifying our business and investing ahead of the curve on renewables, RNG, and hydrogen, which will drive more infrastructure opportunities for us. But we also know that our economies are dependent on low-cost, reliable energy, That's always been true and always will be. Stimulus is driving the right conditions for the recovery, and it's playing out if you look at the pickup in demand and stabilizing commodity prices. A good example is the growth we're seeing right now in Asian economies that's actually bolstering U.S. Gulf Coast energy exports. The fact is that all sources of energy supply are going to be needed to meet growing energy demand, and conventional energy and new investment in conventional energy is going to be part of that. We think Western Canada is really well positioned. Producers have lowered break-evens, cut emissions, and built a backlog of capital-efficient long-lived supply growth. Developing greenfield egress projects is going to be challenging as it is today. So as new capacity is needed, the first call, will be to optimize, expand, and modernize existing infrastructure. That means the value of pipe in the ground is set to increase. We ourselves have plenty of opportunities in the hopper to support new upstream investment and energy export growth. Capitalizing on the value uplift, though, will depend on how good you are at environmental protection and permitting and the emissions reduction solutions that you bring to the table. So companies with scale... Existing connections to prime markets, including exports, and world-class execution capability will thrive. Others won't survive. The strategic location of our assets and the capabilities we've developed to operate in this environment means we're best positioned to win. So spending a minute on the energy outlook, we believe gas will be critical to any energy transition scenario you want to pick and future economic growth. Its abundance means it will be economic for a long time. It's got excellent load following capability on generation, lower emissions, and it will allow renewable generation to grow. Its fuel and density advantages are critical to industrial and manufacturing competitive. You've seen that play out globally as well. Demand was only down 4% versus 2019, and U.S. LNG exports have picked up nicely to 11 BCF per day last month. The next slide hits home the fact that crude is also moving in the right direction. If you look at refined products, pet chem demand didn't miss a beat last year, and gasoline and diesel are climbing back. Now, jet fuel will take longer for obvious reasons, but it's a smaller slice of demand. You can see the massive 20 million barrel per day COVID impact on crude in Q2, so it'll take some time to get fully back to normal. Oil exports held up well last year, around $3 million a day, but we remain bullish on the longer term there in particular. Part of that is economic growth in Asia, which continues to invest heavily to kickstart their local economies. And all of this lines up well with our U.S. Gulf Coast strategy. We're starting to see customer interest to support export infrastructure pop back up. Global inventories are trending down, and with current discipline coming out of OPEC and U.S. shale production, we're seeing price stability. So what does all that mean to us? Our assets are positioned to benefit from growing energy demand, and that's because of the strength of the markets we deliver to, including great connectivity to both gas and oil exports, the scale of the volumes we move, and the competitiveness of our tolls. As you saw this past year, the commercial underpinning and diversification of the assets generates strong and predictable cash flow. When you look at these three franchise maps, the utility-like nature of what we do really comes through. These businesses are absolutely critical to North American and global economies, and they'll be generating cash flow for a very long time. Our renewables business also fits the utility model very well. So that's how we see the big picture. Now let's have a look at last year and how it sets us up for this year. In short, we delivered very solid results and progressed our priorities. GCF came in about the midpoint of our pre-COVID guidance range, a good outcome, and it proves out the resiliency of the portfolio. You can see our track record here on the right in hitting the numbers over time and delivering constant dividend growth. On liquids, we lost 400,000 barrels per day of volume on Q2, but we mitigated a good chunk of that with cost reductions and a number of productivity enhancements. We drove about $300 million in savings, and the plan is to sustain that and add another $100 million this year. And by the way, we did not avail ourselves of government programs to get there. We brought 1.6B of projects into service and started construction on on Line 3 in Minnesota. We ramped up our ESG goals on both emissions and diversity, and we extended our 5% to 7% DCF per share growth outlook another year through 2023. So bottom line, at what has been the worst economic and energy downturn in decades, we grew cash flow, increased the dividend when others went the other way, and we ended the year with an even stronger balance sheet. So let me move to the business update starting with liquids. So fourth quarter mainline throughput averaged 2.65 million a day, so we're seeing the return of volumes that we'd forecast. That was driven by good WCSB response and strong pull from our heavy refinery customers. PATU and U.S. Gulf Coast system utilization was up nicely, and it really shows the competitiveness of our system to the key markets. In fact, heavy mainline capacity has been full since July, and we've been able to use up some available light capacity by optimizing the system to move mediums. What really shone through was the strength of the basin and our system. That has a lot to do with how critical our heavy feedstock is to our U.S. customers. And given we expect to see further decline in global heavy supply, heavy is off of our full path through to the U.S. Gulf will be in big demand. You can see the highlighted path here in yellow. Next is our update on Line 3 and the capital cost refresh that we promised. The entire project underwent exhaustive review and vetting over six years. The record during that time we established is very solid. Our team worked extremely hard with Indigenous partners, and we were responsive to community concerns, and that's why We have strong local and regional support on the ground. We got the final permits in Minnesota in late November and started early work in the field. Recent state federal court decisions once again validated those permits. You saw the stays were denied at both state and federal level. I want to emphasize here that we are using the most fulsome environmental health and safety measures possible. We made this a world-class project, and the permitting agencies were focused on the very same thing. The right-of-way is mostly cleared, station work is underway, and trenching and welding is started. We'll manage through the spring environmental windows as usual, which have been accounted for in our Q4 in-service date estimate. So lots of work ahead on this one, and we've reiterated to our execution team that environmental protection and safety are the number one priority here, and that includes stringent COVID measures. The next slide shows our cost estimate for the entire project and now reflects our final post-permit construction plan in Minnesota. From the last estimate in 2017, capital has increased from $8.2 billion to $9.3 billion, or 13%. We actually came in very close to our budget on the vast majority of the projects, so that's great. This increase really stems mainly from our revised execution plan related to regulatory and permitting processes in Minnesota, so let me explain that. As you know, the plan changed to winter construction, which means more manpower and equipment. The days are shorter, productivity is lower, and there's seasonal transition from winter to spring, and and remind you as well, though, that winter construction does come with some benefits on the environmental side. We also implemented even greater protection for wetlands, increased erosion controls, and we're using the most conservative crossing techniques. Obviously, the regulatory delays, monthly running costs, and carrying costs were higher. Finally, scope changes like rerouting onto the Fond du Lac reservation and COVID protocols were needed. So not surprising, costs have gone up. But a couple of things we want to note here. Despite this higher investment, our updated full cycle return remains attractive. And we're seeing a stronger volume profile and lower interest rates versus the original economics has helped. Once Line 3 is in service, it's going to contribute a lot of free cash flow. And this year, we anticipated it will be about $200 million in Q4 2021. with volumes and EBITDA ramping up in 2022. So on to slide 12, mainline contracting is progressing through the regulatory process. We're currently in what we call the evidentiary phase, which ends in April, and from there we expect a hearing and decision this year. There's been a lot of commentary recently on mainline contracting, but the bottom line is that we're moving forward with it, because it's what our customers want, and that is dedicated capacity and toll certainty, and that's why we have strong support. And the offering reflected numerous changes, as you know, so that all shippers will be better off. So we're continuing to move our application along, and we're looking forward to the hearing, because that will help us get the facts out onto the table for everyone. On line five, a couple of comments on the state's attempt to revoke the Straits easement that was granted decades ago. First of all, the fact is that the Straits segment is safe, and PHMSA has confirmed that more than once. Secondly, the line is absolutely critical to Michigan and the entire surrounding region, and in our view, attempting to cancel the easement contradicts the U.S. federal jurisdiction over safety of the lines. would severely hinder both interstate commerce and North American energy flows, but most important, it endangers the energy security of millions of people and industry in the entire region, resulting in higher consumer costs and lost jobs at the worst possible time. And let's remember that Line 5 moves existing volumes, so shutting down this line is a very serious issue for everybody. One thing that's been lost in all of this is that we are just as or more committed to protecting the Great Lakes than anybody. We've proven that by taking numerous additional actions, listening to the state's concerns very carefully to make a safe pipeline even safer. For example, 24-7 monitoring of vessel traffic in the straits, replacing the St. Clair Crossing, shutting down the line during periods of high wave conditions, and protecting A bunch of other measures, too many to go through today. We then committed to build a tunnel under the straits to house a brand new line that will reduce the risk to near zero. And that tunnel was blessed by the state government. On that front, we received the initial environmental permits and we're working on the remaining two approvals. Finally, just a quick point here on a development area for us, which is carbon capture. And just for context here, this has a lot of power in terms of reducing emissions. So by 2035, there's a potential to store 22% of GHGs, and that's the case on both sides of the board. Transportation is a key part of any carbon solution, which fits our skill sets very well, and it's a big opportunity for us, actually. We're going to be focused initially on Western Canada, where there's strong interest in an industry solution. I'm talking pipe and facilities there. So more to come on that one in the months ahead. Now let's move to our natural gas businesses, which are a key part of the diversification I talked about earlier. In terms of gas transmission, last year was strong, and this year looks better as a bunch of projects come into service in the second half. Renewals on Texas Eastern and Algonquin came in at 99%, which just shows how critical these systems are to U.S. Northeast energy needs, especially on peak demand. Everybody's noticed how cold it is out there. The team did a good job of settling new rates as well with our customers, so they're happy, which added a good chunk of EBITDA for us in the process. We completed last year's $700 million modernization program, which is part of a recurring investment opportunity going forward that Bill talked about at Enbridge Day. We've got $5 billion in execution through 2023 of solid return projects that are moving along well. $3 billion of that, by the way, is slated for in-service this year, so that will contribute to growing free cash flow. On to slide 14, the gas utility industry. put up good numbers again, and keeps on giving on growth. We added 43,000 customers last year, and synergy capture in that business is on track. So we're generating a good premium return above the allowed regulated rate. There's another $4 billion of utility rate-based capital through 2023. Part of this is new community expansions, those are the white dots you see on the map here, and in-franchise replacement projects. On low-carbon options, we've got six RNG projects operating and in construction and more planned. On hydrogen, we're piloting a 2% hydrogen blend facility, and most recently, Gazet Fair, that's our utility in Quebec, is working on a similar pilot. By the way, the RNG and hydrogen projects are either included in rate-based or have long-term contracts, so they fit the business model. Finally, let's talk renewables, specifically offshore wind. Offshore France construction is well underway now on the 480 megawatt St. Nazaire project. We've kicked off now the 500 megawatt Fecont wind farm. We expect those to be cash flowing in 2022 and 2024. Next up is the 450 megawatt Corsell project, which should reach FID in the first half of the year. Some nice development opportunities we're working on as well, including an expansion of our operating rampian project in the UK. Now, that's a 1.2 gig project and another project in Dunkirk, offshore France as well. An exciting area of future growth for us is floating offshore wind. Matthew covered that at Enbridge Day, and we're actually working on a pilot project on the south coast of France today. And this could actually turn into a pretty big opportunity for us going forward. As everybody knows, renewable valuations these days are frothy, to say the least, so that's good for the value of the business. But it also means that returns are being crunched down on new opportunities. So it's nice to have a backlog, like we do, of construction and development projects, and we're not going to stretch our investment criteria on risk or returns. The next slide shows how we're also ramping up our solar self-power program into high gear. We really like these projects because the strategy marries up renewables experience with our gas transmission and liquids franchises, and it reduces our carbon footprint. You can see we've got 15 to 20 projects here totaling several hundred megawatts, so roughly half a billion in investment through 2023 and more beyond that. Now, these projects are not just on the drawing board. In October, we completed Lamberville on Texas Eastern, and another one is on the go on Texas Eastern as well right now. And we've just started our first project for the main line in Alberta. We've got several in late stage development here, which could FID this year. Now, just stepping back for a minute in terms of how we look at these from an investment perspective. You have to remember that power costs are one of the largest operating expenses we have. To the extent we can effectively deploy capital and earn a good return to reduce costs and emissions, we're going to do that. And these projects, by the way, compete for capital, just like the rest of the organic growth that we have, and we'll prioritize the best ones. That's a good segue onto ESG. As you know, we set emissions goals last year net zero by 2050. and a 2030 interim intensity goal of 35% reduction. We spent over a year landing on these and the levers to make sure we hit these targets, so not pie in the sky at all, and they're linked to executive compensation. The three primary ways we'll get there is using less carbon-intense sources to run pumps and compressors, self-powering with solar like the projects I just went through, and modernizing our assets with the latest technology. Maintaining our ESG leadership position is really important to us. I think everybody understands that. Not that we can put that on a slide, but because reducing emissions is part of our business, and it supports the lowest cost of capital. You'll see here we've just added a couple more sector-leading scores from S&P and Wells. So let me conclude the business update by reiterating the three-year growth outlook of 5% to 7% DCF per share CAGR, through 2023. First, there's 1% to 2% of highly visible growth from the revenue and cost lines, very little capital required on that. Embedded revenue escalators in liquids and gas are part of it, watching our overhead, which we've done a good job at, and importantly, leveraging technology to improve productivity and optimize our operations. That has real bottom-line impact, and we went through those at Enbridge Day. Another 4% to 5% will come from completing the 16B of secured capital that we expect will generate a couple billion of EBITDA through 2023. If we execute as planned, we'll have 5 to 6 billion of annual financial capacity starting after Line 3 goes into service, so call that 2022. As we've been saying, we'll be very disciplined in the way we put that capacity to work, which Colin is going to cover and recap our approach to that. So, Colin, over to you.